Getting comfortable with numbers (Oversubscribed Weekly #45)

October 31, 2019 by Mike

Mike here. Let’s talk about math. I read two pieces of content about numbers this week that I thought were particularly interesting, and it got me thinking more about numbers when it comes to fundraising.

The first is a post by NFX, titled 16 Non-Obvious Fundraising Lessons On Pitching. It’s a great post with a lot of valuable insights, but the first point they make resonated a lot:

This is great advice. Founders lose credibility when they speak in generalities. However, one thing that isn’t explicitly stated in this advice is that just numbers are not enough. You should also have a qualitative statement that provides context and tells the investor what the takeaway is, then and back it up with numbers. Not every investor will understand the math alone without context. For example,

  • Don’t say: “We have a 5:1 LTV:CAC ratio”
  • Say: “We’ve figured out our unit economics which can get us to the next level of growth, as we’ve been spending $1,000/month and have validated a a 5:1 LTV:CAC ratio.”

Which leads me to a great tweet thread from Leo Polovets about financial models (which I’ll post below in it’s entirety because it’s so on-point). When thinking about your financial model, remember that the purposes of it are to (1) verify your narrative with math, and (2) serve as a mechanism for you to have constructive conversations with investors about your assumptions.

Your financial model should not be something you’re just using to check a box or satisfy investors. You should be able to play with your financial model like a toy and have fun seeing what happens to the business when assumptions change. Being that comfortable with your financial model is the only way that you can confidently answer questions like, “but what if your customer acquisition doesn’t stay as low as you think it will?” You should have some scenarios in your head that you’re ready to speak to, but you should also be able to whip out the ol’ financial model and say, “let’s find out!”

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